10-Q 1 e89520_10q.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended June 30, 2002 Commission file number 1-467 ----------------- WILSHIRE OIL COMPANY OF TEXAS ------------------------------------------------------- (Exact name of registrants as specified in its charter) Delaware 84-0513668 -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 921 Bergen Avenue - Jersey City, New Jersey 07306-4204 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number - including area code (201) 420-2796 -------------------------------------------------------------------------------- NO CHANGE --------------------------------------------------- Former name, former address and former fiscal year, if changed since last reports. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period by this report. Common Stock $1 Par Value -- 7,855,781 WILSHIRE OIL COMPANY OF TEXAS INDEX Page No. -------- Part I Financial Information Financial Information: 1 Condensed Consolidated Balance Sheets - June 30, 2002 (Unaudited) and December 31, 2001 Condensed Consolidated Statements of Income - 2 Six months ended June 30, 2002 and 2001 Condensed Consolidated Statements of Income - 3 Three months ended June 30, 2002 and 2001. Condensed Consolidated Statements of Cash Flows - 4 Six months ended June 30, 2002 and 2001. Notes to Condensed Consolidated Financial Statements 5 Management's Discussion and Analysis 9 of Financial Condition and Results of Operations Part II Other Information 12 WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (000's Omitted, Except Share Data)

June 30, December 31, (Unaudited) ASSETS 2002 2001 ------ --------- --------- CURRENT ASSETS Cash and cash equivalents ................................... $ 2,691 $ 4,984 Marketable securities, available-for-sale, at fair value .... 9,546 10,358 Accounts receivable ......................................... 1,173 832 Income tax receivable ....................................... 445 -- Prepaid expenses and other current assets ................... 1,522 1,215 --------- --------- Total current assets ...................................... 15,377 17,389 --------- --------- MORTGAGE NOTES RECEIVABLE ..................................... 2,692 6,572 --------- --------- PROPERTY AND EQUIPMENT Oil and gas properties, using full cost method of accounting 137,796 136,355 Real estate properties ...................................... 70,043 69,161 Other property and equipment ................................ 377 394 --------- --------- 208,216 205,910 Less - Accumulated depreciation, depletion and amortization 124,344 121,968 --------- --------- 83,872 83,942 --------- --------- $ 101,941 $ 107,903 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt ........................... $ 556 $ 7,287 Loan payable to shareholder ................................. 500 700 Accounts payable ............................................ 2,664 2,301 Income taxes payable ........................................ -- 50 Deferred income taxes ....................................... 752 896 Accrued liabilities ......................................... 89 1,028 --------- --------- Total current liabilities ................................. 4,561 12,262 --------- --------- LONG-TERM DEBT, less current portion .......................... 61,404 60,661 --------- --------- DEFERRED INCOME TAXES ......................................... 11,622 11,256 --------- --------- OTHER LONG-TERM LIABILITIES ................................... 31 31 --------- --------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock, $1 par value, 1,000,000 shares authorized; None issued and outstanding in 2002 and 2001 .............. -- -- Common stock, $1 par value, 15,000,000 shares authorized; Issued 10,013,544 shares in 2002 and 2001 ................. 10,014 10,014 Capital in excess of par value .............................. 9,029 9,029 Treasury stock, 2,157,763 and 2,132,656 shares at June 30, 2002 and December 31, 2001, respectively, at cost ........... (10,264) (10,179) Retained earnings ......................................... 18,061 17,564 Accumulated other comprehensive loss ........................ (2,517) (2,735) --------- --------- 24,323 23,693 --------- --------- $ 101,941 $ 107,903 ========= =========

The accompanying notes are an integral part of these condensed consolidated financial statements. 1 WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (000's Omitted Except Per Share Data) FOR THE SIX MONTHS ENDED ------------------------ June 30, June 30, 2002 2001 -------- -------- REVENUES Oil & Gas ................................ $ 2,567 $ 5,815 Real Estate .............................. 7,294 6,828 -------- -------- Total Revenues ....................... 9,861 12,643 -------- -------- COSTS AND EXPENSES Oil and Gas Production Expenses .......... 1,152 1,242 Real Estate Operating Expenses ........... 4,224 4,171 Depreciation, Depletion and Amortization . 2,107 1,830 General and Administrative ............... 948 706 Gain on Sales of Real Estate Assets ...... (168) -- -------- -------- Total Costs and Expenses ............. 8,263 7,949 -------- -------- Income from Operations ............... 1,598 4,694 OTHER INCOME ............................. 1,377 360 INTEREST EXPENSE ......................... (2,318) (2,416) -------- -------- Income before provision for income taxes 657 2,638 PROVISION FOR INCOME TAXES ............... 160 834 -------- -------- Net income ........................... $ 497 $ 1,804 ======== ======== BASIC AND DILUTED EARNINGS PER SHARE ..... $ 0.06 $ 0.23 ======== ======== For purposes of comparison, certain items shown in the 2001 financial statements have been reclassified to conform with the presentation used for 2002. The accompanying notes are an integral part of these condensed consolidated financial statements. 2 WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (000's Omitted, Except Per Share Data) FOR THE THREE MONTHS ENDED -------------------------- June 30, June 30, 2002 2001 ------- ------- REVENUES Oil & Gas ................................ $ 1,319 $ 2,397 Real Estate .............................. 3,525 3,539 ------- ------- Total Revenues ....................... 4,844 5,936 ------- ------- COSTS AND EXPENSES Oil and Gas Production Expenses .......... 694 641 Real Estate Operating Expenses ........... 2,117 2,130 Depreciation, depletion and amortization . 1,121 830 General and Administrative ............... 488 362 Gain on Sale of Real Estate Assets ....... (168) -- ------- ------- Total Costs and Expenses ............. 4,252 3,963 ------- ------- Income from Operations ............... 592 1,973 OTHER INCOME ............................. 831 265 INTEREST EXPENSE ......................... (1,183) (1,247) ------- ------- Income before provision for income taxes 240 991 PROVISION FOR INCOME TAXES ............... 33 224 ------- ------- Net income ........................... $ 207 $ 767 ======= ======= BASIC AND DILUTED EARNINGS PER SHARE ..... $ 0.03 $ 0.10 ======= ======= For purposes of comparison, certain items shown in the 2001 financial statements have been reclassified to conform with the presentation used for 2002. The accompanying notes are an integral part of these condensed consolidated financial statements. 3 WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (000's Omitted) For The Six Months Ended ------------------------ June 30, June 30, 2002 2001 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income ............................................ $ 497 $ 1,804 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation, depletion and amortization .............. 2,107 1,830 Gain on sale of marketable securities ................. (482) -- Gain on sales of real estate assets ................... (168) -- Deferred income tax provision (benefit) .............. 635 (266) Changes in operating assets and liabilities - Receivables ......................................... (786) (514) Prepaid expenses and other current assets ........... (307) 22 Accounts payable, accrued and other liabilities ..... (626) 952 -------- -------- Net cash provided by operating activities ............. 870 $ 3,828 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from reduction of mortgage notes receivable .. 3,880 -- Capital expenditures, net ............................. (2,483) (7,032) Purchases of marketable securities .................... (1,343) -- Proceeds from sales and redemptions of securities ..... 2,316 -- Proceeds from sales of real estate properties ......... 345 -- -------- -------- Net cash provided by (used in) investing activities 2,715 (7,032) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payment of long term debt ................... (10,068) (2,004) (Decrease) increase in loan payable to shareholder .... (200) 300 Proceeds from issuance of long term debt .............. 4,080 4,270 Purchase of treasury stock ............................ (85) (218) -------- -------- Net cash (used in) provided by financing activities ... (6,273) 2,348 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH ................. 395 (45) -------- -------- Net (decrease) in cash and cash equivalents ........... (2,293) (901) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................................... 4,984 2,925 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................................... 2,691 $ 2,024 ======== ======== SUPPLEMENTAL DISCLOSURES TO THE STATEMENTS OF CASH FLOWS: Cash paid during the period for - Interest .............................................. $ 2,319 $ 2,416 Income taxes .......................................... $ 159 $ 156 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 WILSHIRE OIL COMPANY OF TEXAS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2002 1. FINANCIAL STATEMENTS The unaudited condensed consolidated financial statements included herein have been prepared by the Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K/A. This condensed financial information reflects, in the opinion of management, all adjustments necessary to present fairly the results for the interim periods. In connection with the preparation of the interim financial statements, the Company estimates oil and gas operations for the month of June based on prior months actual results and specific significant transactions which may have occurred during the month. In the opinion of management these estimated results approximate actual. The results of operations for such interim periods are not necessarily indicative of the results for the full year. 2. DESCRIPTION OF BUSINESS: Wilshire Oil Company of Texas (the Company) is a diversified corporation engaged in oil and gas exploration and production and real estate operations. The Company's oil and gas operations are conducted both in its own name and through several wholly-owned subsidiaries in the United States and Canada. Crude oil and natural gas productions are sold to oil refineries and natural gas pipeline companies. The Company's real estate holdings are located in the states of Arizona, Florida, New Jersey, Texas and Georgia. The Company also maintains investments in marketable securities. 3. SEGMENT INFORMATION The Company is engaged in the exploration and development of oil and gas, both in its own name and through several wholly-owned subsidiaries, on the North American continent. The Company also conducts real estate operations throughout the United States. OIL AND GAS The Company conducts its oil and gas operations in the United States and Canada. Oil and gas operations in the United States are located in Arkansas, California, Kansas, Nebraska, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas and Wyoming. In Canada, the Company conducts oil and gas operations in the Provinces of Alberta, British Columbia and Saskatchewan. REAL ESTATE The Company's real estate operations are conducted in the states of Arizona, Texas, Florida, Georgia and New Jersey. The Company's properties consists of apartment complexes as well as commercial and retail properties. CORPORATE The Company holds investments in certain marketable securities, which are classified as held for sale. From time to time, the Company buys and sells securities in the open market. Over the years, the Company has decreased its holding in marketable securities and focused its resources in the oil and gas and real estate divisions. 5 The following segment data is presented based on the Company's internal management reporting system-

For the six months ended June 30 ------------------------------ 2002 2001 ------------- ------------- Revenues Oil and gas - United States .................. $ 1,631,000 $ 3,185,000 Oil and gas - Canada ......................... 936,000 2,630,000 Real estate .................................. 7,294,000 6,828,000 ------------- ------------- $ 9,861,000 $ 12,643,000 ------------- ------------- Income (loss) from operations and reconciliation to Income before provision for income taxes Oil and gas - United States (a) .............. $ (382,000) $ 1,205,000 Oil and gas - Canada (a) ..................... 448,000 2,102,000 Real estate (a) .............................. 2,063,000 1,557,000 Corporate .................................... (531,000) (170,000) ------------- ------------- Income from Operations ................... 1,598,000 4,694,000 Other Income ................................... 1,377,000 360,000 Interest expense ............................. (2,318,000) (2,416,000) ------------- ------------- Income before provision for income taxes . $ 657,000 $ 2,638,000 ------------- ------------- Identifiable assets Oil and gas - United States .................. $ 14,622,000 $ 17,143,000 Oil and gas - Canada ......................... 13,998,000 21,400,000 Real estate .................................. 58,534,000 43,998,000 Corporate .................................... 14,787,000 23,043,000 ------------- ------------- $ 101,941,000 $ 105,584,000 ------------- -------------

(a) Represents revenues less all operating costs, including depreciation, depletion and amortization. 6 The following segment data is presented based on the Company's internal management reporting system- For the three months ended June 30 -------------------------- 2002 2001 ----------- ----------- Revenues Oil and gas - United States ................ $ 903,000 $ 1,549,000 Oil and gas - Canada ....................... 416,000 848,000 Real estate ................................ 3,525,000 3,539,000 ----------- ----------- $ 4,844,000 $ 5,936,000 ----------- ----------- Income from operations and reconciliation to Income before provision for income taxes Oil and gas - United States (a) ............ $ 31,000 $ 684,000 Oil and gas - Canada (a) ................... 131,000 623,000 Real estate (a) ............................ 963,000 846,000 Corporate .................................. (533,000) (180,000) ----------- ----------- Income from Operations ................. 592,000 1,973,000 Other Income ................................. 831,000 265,000 Interest expense ........................... (1,183,000) (1,247,000) ----------- ----------- Income before provision for income taxes $ 240,000 $ 991,000 ----------- ----------- (a) Represents revenues less all operating costs, including depreciation, depletion and amortization. 7 4. COMPREHENSIVE INCOME Comprehensive income for the six months ended June 30, 2002 and 2001 is as follows: 2002 2001 ----------- ----------- Net income ......................................... $ 497,000 $ 1,804,000 ----------- ----------- Other comprehensive income (loss), net of taxes Foreign currency translation adjustments ......... 395,000 (45,000) Change in unrealized gain on marketable securities (177,000) 1,950,000 ----------- ----------- Other comprehensive income ......................... 218,000 1,905,000 ----------- ----------- Comprehensive income ............................... $ 715,000 $ 3,709,000 =========== =========== Changes in the components of Accumulated Other Comprehensive Income (Loss) for the year 2001 and for the six months ended June 30, 2002 are as follows- Unrealized Gains Cumulative Accumulated (Losses) on Foreign Currency Other Available-for Sale Translation Comprehensive Securities Adjustment Income (Loss) ----------- ----------- ----------- BALANCE, December 31, 2000 .... $(1,585,000) $(3,292,000) $(4,877,000) Change for the year 2001 . 2,680,000 (538,000) 2,142,000 ----------- ----------- ----------- BALANCE, December 31, 2001 .... 1,095,000 (3,830,000) (2,735,000) Change for the six months (177,000) 395,000 218,000 ----------- ----------- ----------- BALANCE, June 30, 2002 ........ $ 918,000 $(3,435,000) $(2,517,000) =========== =========== =========== 5. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share-

Six Months Ended June 30, Three Months Ended June 30 ------------------------- ------------------------- 2002 2001 2002 2001 --------- ---------- --------- --------- Numerator- Net income $ 497,000 $1,804,000 $ 207,000 $ 767,000 ========= ========== ========= ========= Denominator- Weighted average common shares outstanding - Basic ........ 7,870,228 7,942,738 7,859,905 7,915,953 Incremental shares from assumed conversions of stock options -- -- -- -- --------- ---------- --------- --------- Weighted average common shares outstanding - Diluted ...... 7,870,228 7,942,738 7,859,905 7,915,953 ========= ========== ========= ========= Basic earnings per share ....... $ 0.06 $ 0.23 $ 0.03 $ 0.10 Diluted earnings per share ..... $ 0.06 $ 0.23 $ 0.03 $ 0.10

6. COMMITMENTS AND CONTINGENCIES The Canadian subsidiary of the Company was advised of a pollution problem by an operator of a well where the Company has a joint interest. The amount of potential liability that the initial claim listed was covered by the Company's pollution policy. Recently, the Company has become aware of a larger liability from this event. The Company has denied any liability for the incident, as it was not the operator of the well, and has received advice from legal counsel that it should not bear any liability from the incident. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net income for the six months ended June 30 was $497,000 in 2002 as compared to $1,804,000 in 2001. Consolidated revenues for Wilshire's six months ended June 30 decreased from $12,643,000 in 2001 to $9,861,000 in 2002. Oil and gas revenues decreased by $3,248,000 due to a reduction in oil and gas prices in 2002, compared to 2001 and a decrease of 37% in oil production in 2002. The average price of gas received by the Company in 2001 was $4.76 per MCF vs $2.20 in 2002, a 54% decrease, while the average price of oil in 2001 was $28.64 per BBL, compared to $19.09 in 2002 a 33% decrease. Real estate revenue increased from $6,828,000 in 2001 to $7,294,000 in 2002. This increase is primarily due to the purchase of a 180 unit apartment complex in San Antonio, Texas on March 29, 2001. Total Costs and Expenses, excluding Gain on Sales of Real Estate Assets, increased by $482,000 for the six month period ended June 30, 2002, a 6% increase over 2001. Oil and Gas Production expense decreased by $90,000 between 2001 and 2002 due to lower overall production. Depreciation, Depletion and Amortization expense for 2002 increased $277,000, or 15% over 2001 mainly as a result of increased depletion charges for 2002 due to the low oil and gas prices at December 31, 2001. Those low prices resulted in a decrease in the value of our reserves, which in turn caused our depletion expense for 2002 to increase. General and Administrative expenses for 2002 increased $242,000 over 2001 due to higher legal, accounting and insurance expenses. Interest expense decreased in 2002, due to a reduction in long and short term debt in 2002. The Canadian subsidiary of the Company was advised of a pollution problem by an operator of a well where the Company has a joint interest. The amount of potential liability that the initial claim listed was covered by the Company's pollution policy. Recently, the Company has become aware of a larger liability from this event. The Company has denied any liability for the incident, as it was not the operator of the well, and has received advice from legal counsel that it should not bear any liability from the incident. 9 LIQUIDITY AND CAPITAL RESOURCES At June 30, 2002 the Company had approximately $9,546,000 in marketable securities at market value. The current ratio at June 30, 2002 was 3.4 to 1, which management considers adequate. On December 31, 2001 the Company had $7,287,000 in short term debt, compared to $556,000 on June 30, 2002. This reduction in short term debt has resulted in an increase in the current ratio at June 30, 2002. The Company anticipates that cash provided by operating and investing activities will be sufficient to meet its normal capital requirements to acquire oil and gas properties and to drill and evaluate these and other oil and gas properties held by the Company. The major gas drilling program announced by the Company for its Canadian subsidiary will be financed by a borrowing the Company has arranged with a Canadian bank. The Company anticipates that this funding requirement will be approximately $7,200,000 Canadian (approximately $4,700,000 U.S.). The Company plans to actively continue its exploration and production activities as well as search for the acquisition of oil and gas producing properties and of companies with desirable oil and gas producing properties. There can be no assurance that the Company will in fact locate any such acquisitions. The Company will also explore real estate acquisitions as they arise. The timing of any such acquisition will depend on, among other things, economic conditions and the favorable evaluation of specific opportunities presented to the Company. The Company is currently planning further acquisitions of investment properties during the next year. While the Company anticipates that it will actively explore these and other real estate acquisition opportunities, no assurance can be given that any such acquisition will occur. Net cash provided by operating activities was $870,000 in 2002 and $3,828,000 in 2001. The decrease in 2002 was primarily due to lower income and an increase in accounts receivable and a decrease in accounts payable and accrued and other liabilities. Net cash provided by (used in) investing activities was $2,715,000 in 2002 and $(7,032,000) in 2001. The variations were due to lower capital expenditures in the first six months of 2002 compared to the same period in 2001. In 2001, the Company acquired a 180 unit apartment complex in San Antonio, Texas. In 2002, the Company collected $3,880,000 of its mortgage notes receivable and also received $2,316,000 from the sale of marketable securities, while purchasing $1,343,000 in marketable securities. Net cash provided by (used in) financing activities was $(6,273,000) in 2002 and $2,348,000 in 2001. The variation principally relates to the issuance of long-term debt in connection with real estate properties during the respective six month periods as well as principal payments of long-term debt. In addition, the Company acquired approximately $85,000 of treasury stock in 2002. The Company believes it has adequate capital resources to fund operations for the foreseeable future. 10 FORWARD-LOOKING STATEMENTS This Report on Form 10-Q for the quarter ended June 30, 2002 contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included herein other than statements of historical fact are forward-looking statements. Although the Company believes that the underlying assumptions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. The Company's business and prospects are subject to a number of risks which could cause actual results to differ materially from those reflected in such forward-looking statements, including volatility of oil & gas prices, the need to develop and replace reserves, risks involved in exploration and drilling, uncertainties about estimates of reserves, environmental risks relating to the Company's oil & gas and real estate properties, competition, the substantial capital expenditures required to fund the Company's oil & gas and real estate operations, market and economic changes in areas where the Company holds real estate properties, interest rate fluctuations, government regulation, and the ability of the Company to implement its business strategy. 11 PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K No Form 8-K was filed during the quarter ended June 30, 2002. 12 S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WILSHIRE OIL COMPANY OF TEXAS ------------------------------------------ Registrant) Date: August 14, 2002 /s/ S. Wilzig Izak ------------------------------------- By: S. Wilzig Izak Chairman of the Board and Chief Executive Officer /s/ Philip G. Kupperman ------------------------------------- By: Philip G. Kupperman President and Chief Financial Officer The following two (2) Certifications should be filed as "Correspondence" with the 10-Q and not as Exhibit to the 10-Q.